Westpac NZ wins RBNZ satisfaction

Westpac NZ has won a tick of approval from the Reserve Bank (RBNZ) after taking action to improve the management of its liquidity risk. But it still has further to go.

Monday, May 30th 2022, 8:29PM

Westpac NZ has won a tick of approval from the Reserve Bank (RBNZ) after taking action to improve the management of its liquidity risk.

But it still has further to go.

Westpac's problems were first unveiled with a major major dressing down by the RBNZ in March last year.

The RBNZ said Westpac was incorrectly calculating its liquid assets, adjusted for expected cash inflows and outflows, to mitigate risk during a period of stress.

A series of reforms then took place within Westpac, including changes to its board. The bank also made statements to the stock exchange and the RBNZ made further critical statements about Westpac last November.

In the latest development, a report by Deloittte has been unveiled by the RBNZ, describing progress at Westpac.

“Overall, WNZL has improved its liquidity control environment,” Deloitte wrote, and it went on to describe several areas of improvement, including monitoring liquidity risks within New Zealand.

“The repatriation of the liquidity model to New Zealand has necessitated changes to its operating model,” Deloitte wrote.

“This included transferring responsibilities to WNZL Treasury, Treasury Finance and Market Risk, refreshing existing liquidity risk management frameworks and redefining roles and responsibilities across three lines of defence.”

Other changes won Deloitte's approval, including the “rigorous reviews and external validation” of systems prior to their implementation.

Deloitte finished by saying 59 of 73 remediation milestones had been completed by WNZL. Others still had to be finished but did not represent significant risk.

Commenting on this Deloitte report, the RBNZ said it was “encouraged”, and it added Westpac's financial position was sound.

In a related manner, Westpac's risk management was also faulted by the RBNZ in its criticism of March last year. By November, the RBNZ said the bank had been making improvements and these were noted in a statement to the Stock Exchange by Westpac in May this year.

It said the matter was being remedied under a process monitored by the bank's board and by the consultancy Oliver Wyman, which had identified many of the original problems.

Commenting on the risk management issue, Deloitte said Westpac's risk management was reactive, not proactive. It said progress had been made but more still needed to be done.

Westpac was clearly moving in the right direction, Deloitte said, and this targeted momentum should continue over the next two to three years.

In a statement, Westpac, NZ Chief Executive Catherine McGrath said she was pleased with progress.

“However, we agree that further refinements can be made and we’ll be building that into our continuous improvement activity.”

Tags: Westpac